1 

Fall 2019
Active Readings for Business
Corpus N°11

Guillaume Sarrat de Tramezaigues

guillaume.sarratdetramezaigues@sciencespo.fr

1/ « Hard times for SoftBank », The Economist, 2019 Pages 2-3

2/ « A slice of students », Financial Times, 2019 Pages 4-6

3/ « New wealth taxes to come », The Economist, 2019 Pages 7-8

4/ « The gender gap under automatisation », Harvard Business Review, 2019 Pages 9-10

Department of Economics– Nov. 2019

  

Article 1 2 
The Economist
Hard times for SoftBank
After the WeWork fiasco Masayoshi Son’s empire needs a rethink
Nov 7th 2019

Companies and financial vehicles that get into trouble often have common characteristics: high debts, accounting
that is hard to understand, opaque assets that are hard to value and managers who have a hard time facing reality.
That more or less fits the description of SoftBank, a giant Japanese telecoms and technology conglomerate founded
and run by Masayoshi Son, which on November 6th announced a $6bn loss after bailing out WeWork, a loss-
making property firm. Speaking in Tokyo, Mr Son put on a defiant display and insisted that SoftBank has a valuable
portfolio of tech assets that the outside world does not appreciate. But soon enough, like most troubled businesses,
SoftBank will have to confront its underlying weakness: a lack of cashflow to back up all of the hype. It may have
to shrink and could end up being broken up.

Mr Son has cultivated an eccentric persona by making dramatic predictions about how technology will change the
world and insisting his firm will last 300 years. But SoftBank is no curiosity. After a long expansion binge it is the
world’s fifth-most-indebted non-financial firm, with gross consolidated debts of $166bn (after deducting cash the
net figure is $129bn). These are owed to banks and investors around the world and to Japanese households.
SoftBank controls important companies, including Sprint, an American telecoms outfit, and Arm, a British tech firm
that is a vital cog in the semiconductor industry. Saudi Arabia has invested a pile of public money in Mr Son’s tech-
investment arm, known as the Vision Fund. This vehicle has gone on an acquisition spree, buying stakes in tech
“unicorns”, several of which, including WeWork and Uber, a ride-hailing pioneer, have struggled of late.

SoftBank is hard to understand because it is complex and because Mr Son’s explanation of its purpose often
changes. It was founded in 1981 as a software distributor. In 2000 Mr Son was clever (or lucky) enough to invest
in Alibaba, which became China’s most valuable company. Today SoftBank owns 24% of the e-commerce giant.
Between 2006 and 2015 SoftBank morphed into a telecoms firm, buying first Vodafone’s Japanese arm and then
Sprint. The most recent phase started in 2016, when Mr Son pivoted again, this time to investing in fashionable
tech firms, and created the Vision Fund. The vehicle raises money from outside investors but is run by SoftBank
and enters into various transactions with it.

Department of Economics– Nov. 2019

  

The results of all this can be baffling. Is SoftBank a conglomerate or a venture-capital firm? Does Mr Son act in the 3 
interests of SoftBank’s shareholders or the Vision Fund’s investors? Analysts have struggled to find a coherent way
to think about the firm, in one case, optimistically, describing it as tech’s Berkshire Hathaway. Shareholders have
been lukewarm; SoftBank’s share price has gone nowhere for half a decade. Credit-rating agencies have been
tolerant. Never mind that SoftBank’s consolidated accounts—which, roughly, tally the figures for all the assets that
it controls—show it has burned up a cumulative $2bn in free cashflow over the past five years (see chart), even as
it has booked a gargantuan $43bn of profits.

The simplest way to view SoftBank is as an indebted holding company that owns a basket of assets, which are of
mixed quality and often themselves indebted. These include Arm and stakes in Alibaba, the Vision Fund, Sprint
and a Japanese telecoms operator. Mr Son argues that this holding company is financially strong. It is legally
responsible for only a subset of the group’s net debt—some $41bn—with the rest owed by operating companies
that could, in principle, default without bringing the whole house down. Meanwhile, the value of the stakes that the
holding company owns are worth several times its debts, at $247bn. Half of this sits in Alibaba. In other words, if
you liquidated everything, the holding company could easily pay off its obligations. What’s not to like?

It is a seductive story, with three big flaws. First, the holding company still needs to receive enough income to pay
its interest bills, in the form of dividends and fees paid to it by the firms and funds that it invests in. At the moment
it does but the margin for error is tight. That feeds into the second worry, that the underlying performance of the
firms that SoftBank invests in is weak, suggesting that their valuations may fall. WeWork has got lots of attention
for its vast losses. But consider Arm, supposedly a jewel in the crown, which SoftBank bought for $31bn in 2016.
In the most recent quarter its sales fell year-on-year and it made a loss—hardly a stellar performance.

The third worry is that firms and funds that SoftBank invests in have too much debt. The Vision Fund has $40bn of
debt-like securities with a hefty coupon. Even if SoftBank is not legally liable it may feel it has to bail out entities
that it sponsors. This has just happened at WeWork, into which SoftBank has pumped another $6.5bn. Worries
over borrowing levels are compounded by reports that SoftBank and Mr Son have put in place unusual debt
structures. For example, SoftBank is reported to have loaned money to employees to invest in the Vision Fund. Mr
Son himself is reported to have taken out personal loans secured against his 22% stake in SoftBank. Corporate
structures that depend on layers upon layers of debt are inherently fragile. When they come under pressure the
end result is often hard to predict.

Mr Son’s instinct is to expand by launching a second $100bn-plus Vision Fund, from which SoftBank could
presumably earn fees and to which it could perhaps sell assets, while remaining in control. But the WeWork fiasco
raises profound doubts about his judgment and SoftBank’s valuation process.

From soft to soggy

Instead, the obvious path for SoftBank is a dose of austerity. That would mean stemming the losses at the tech
firms owned by the Vision Fund and selling down more assets; SoftBank is already trying to merge Sprint with T-
Mobile, a rival. It would also require Mr Son to cede control. His vision of SoftBank involves one man being largely
responsible for hundreds of billions of dollars—and for juggling no small number of competing objectives and
interest groups. If you think that approach still makes sense you have to be soft in the head.

Department of Economics– Nov. 2019

  

Article 2 4 
Financial Times
Shares in students: nifty finance or indentured servitude?
Yield-starved investors are taking slices of graduates’ future income
Andre Hunter
November 12 2019

Combine a crisis in college affordability with yield-starved investors and you get one of the more unusual financial
products of the past decade: shares in students. Income share agreements are an alternative to student loans that
are gaining ground in the US. From only a handful several years ago, this academic year almost 50 American
universities and technical academies offer them.

Next year, about 100 will. A student funding their education with an ISA gets money upfront in exchange for offering
a share of their income after graduation — ranging from nothing if they are unemployed or on a low salary to
potentially several multiples of what they received. Graduates continue paying a slice of their income until the ISA
expires, usually after about a decade, or when they hit a repayment cap. Risk, in short, is shifted from borrower to
lender. “They might go backpacking for eight years and not pay you a dime, they’d be well within their rights,” said
Charles Trafton, president of Edly, a recently-launched marketplace in New York that connects investors with ISA
programmes. ISAs are not a new idea — Yale briefly offered one in the 1970s — but today a group of universities,
investors, and start-ups claim they have managed to make ISAs work. If they are right, ISAs could be part of the
answer to the mounting US student debt burden, sitting at more than $1.5tn, that has become a central issue for
those competing for the Democratic presidential nomination. ISAs are also attracting rare bipartisan interest in
Washington.

A bill being considered in Congress to give ISAs a regulatory framework has been co-sponsored by the Republican
senator Marco Rubio and Christopher Coons, a Democrat. Nonetheless, proponents of widespread debt
forgiveness such as Elizabeth Warren and Bernie Sanders are wary. Yet for now ISAs remain a niche product with
much to prove; they compete in the $10bn-a-year private debt marketplace, rather than with $100bn-a-year
government-subsidised loans. Borrowing from a bank or the government is still the dominant way to fund higher
education in the US.

The most common way to administer an ISA is through a university or technical school, which will usually determine
eligibility and co-invest alongside external investors. Some companies, though, offer direct-to-consumer ISAs,
where students apply for the money directly. Paul Laurora, a recent graduate of Purdue University in Indiana, said

Department of Economics– Nov. 2019

  

university involvement in ISAs gave them credibility in the eyes of students. “Purdue is not going to be involved with
an Enron Corporation that will screw you over,” he said. 5 

He took out an ISA for $33,000 to cover his tuition fees after exhausting federally-subsidised loans. A university-
administered ISA also appears to align the incentives of universities and students. The better that universities
prepare students for the workforce, the greater the returns they will reap from their ISA programmes. ISAs have
become particularly popular at institutions that offer crash courses in professionally-oriented skills such as coding
or welding. Mr Trafton is eager to stress the benefits for investors: “They’re totally unique assets, high quality,
uncorrelated with anything else [prospective buyers] are investing with.” As major government bond markets offer
negligible returns, the ground is certainly fertile for products that promise much more. ISAs for undergraduate
degrees offer investors yields in the high single digits, said Mr Trafton, while those for technical schools offer yields
in the low double digits.

The tiny size of the market is a key impediment for major institutional investors. So far, only a handful of smaller
investors have taken the plunge. Peter DeCaprio, president of Crow Point Partners, a $1bn Massachusetts asset
management company, is one. He invests in a blend of university and coding school ISAs. “You have to take small
bites. You can’t put $20m-$40m to work in a month,” he said. “We’re lucky that we’re small and can take smaller
bite sizes, that’s been helpful.” Michael Prober, a family office investor, is also a buyer. “I felt that you could get
equity mezzanine type rates of return for credit risk,” he said, adding: “There’s a window in this asset class, maybe
it’s a year, maybe it’s three years, where you can make nice rate of return before capital markets swallow it.” Mr
DeCaprio concurs: “Selfishly, I hope people take their time. We have the asset class to ourselves.” Anyone entering
the market faces major risks.

There is no case law on ISA defaults, nor bespoke regulation — although legislation currently in Congress may
change that. Many institutions issuing them are only a few years old. “Some of the breathless coverage of investor
interest, it doesn’t materialise, and it makes you look foolish as a breathless coverer. It can’t happen that quickly if
you do it responsibly,” said Tonio DeSorrento, chief executive of Vemo Education, which administers Utah and
Purdue’s ISAs. Marketing ISAs directly to students, without university involvement, is a more scalable but also more
challenging model. “How do I even underwrite 3,000 students from 3,000 different schools from 3,000 different
majors? It’s a credit card portfolio of twenty-somethings,” Mr Trafton of Edly said. Higher education is the only place
you would counsel someone you love to borrow 10 to 20 times their net worth and make a single investment [a
university degree] with it and hope it works Wade Eyerly, chief executive of Education Insurance Corporation A trio
of German entrepreneurs — Mike Mahlkow, Constantin Schreiber, and David Nordhausen — claim to have
managed to. ISAs are more prevalent in Germany, and they hope to export their expertise to the US.

Department of Economics– Nov. 2019

  

Their company, Blair, finances 25 students and is planning to fund several hundred over the next year. Mr Mahlkow
said direct-to-consumer ISAs can succeed by stressing non-monetary benefits, rather than competing solely on 6 
cost. “What many people forget is that humans are not hyper-rational. Students are often uncertain about their
future, but also don’t want to worry about their future. With an ISA you get the peace of mind that you can afford it
in the future,” he said. Mitchel Kenney, a student at the University of Utah, agrees. “There’s an opportunity for me
to go and live in Italy for nine months next year. The pay won’t be as great as the US, but I can take a closer look
since a federal loan isn’t going to come knocking,” he said. Mr Kenney is funding his final year of study through the
university’s pilot ISA programme.

Blair’s ISAs are funded by foundations and wealthy individuals, but Mr Mahlkow hopes to transition to institutional
investors. However, many remain doubtful that ISAs are viable at all at a large scale. David Klein, chief executive
of online lender CommonBond, once planned to offer ISAs, but faced pushback from students and investors. “We
discovered that people viewed [ISAs] as indentured servitude,” he said. “Investors believed that if you chose an
ISA over debt, it meant your confidence in your future ability to earn was low.” He suggested less radical shifts to
accomplish similar goals: mandating that universities cover some student defaults; making employer student debt
contributions tax-free; and increasing transparency on graduate incomes. In a sign of the financial challenges in
American higher education, ISAs are by no means the most unconventional product available to universities.

Pending final regulatory approval, Illinois universities will soon be able to purchase, for several thousand dollars
per student, “American Dream Insurance”: a five-year student income guarantee. If a student fails to earn above
an income threshold — determined by the university they attend and the field they study — then Education
Insurance Corporation, the start-up selling the insurance, will pay them the difference five years after they graduate.
Chief executive Wade Eyerly stressed the urgency of reducing the risks of paying for university. “Higher education
is the only place you would counsel someone you love to borrow 10 to 20 times their net worth and make a single
investment [a university degree] with it and hope it works,” he said.

Department of Economics– Nov. 2019

  

Article 3 7 
The Economist
Wealth taxes have moved up the political agenda
Some economists are reconsidering their aversion to levies on large fortunes
Oct 3rd 2019

Five years ago Thomas Piketty’s “Capital in the Twenty-First Century”, a weighty analysis of rising inequality, flew
off shelves and ignited fiery debate. Fans and detractors alike tended to agree on one thing, at least: its proposal
to fix inequality—a tax on wealth—was a dud. A half-decade later the mood has shifted. Several candidates for the
Democratic presidential nomination promise to tax wealth; Bernie Sanders recently announced a plan to tax
fortunes of more than $32m at 1% per year, and those larger than $10bn at 8%. In his latest doorstopper, “Capital
and Ideology”, currently available only in French, Mr Piketty suggests taxing the wealth of billionaires at up to 90%.
Few economists go so far. But more are now arguing that wealth taxes need not slow growth.

The shifting political climate is not hard to explain: taxes on wealth are popular. An analysis of recent survey
evidence, for example, found that Americans favour such levies, especially on inheritance. And the case for taxing
wealth has become easier to make. Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley,
find that the top 0.1% of taxpayers accounted for about 20% of American wealth in 2012, up from 7% of wealth in
1978 and close to levels last seen in 1929. The vast fortunes of the very rich—for example the more than $100bn
controlled by Jeff Bezos, the founder and boss of Amazon—make juicy targets, too, for politicians seeking to fund
new spending.

Economists have long been hostile to wealth taxes. But not Mr Piketty, Mr Saez or Mr Zucman. Mr Piketty based
his case on the argument that concentrated wealth leads to concentration of political power, which undermines
democracy. Mr Saez and Mr Zucman agree, and cite other concerns. In a recent paper, for instance, they note that
in America the ratio of household wealth to national income has nearly doubled over the past 40 years, mostly
because of the rising value of assets. Higher asset values could mean that firms are becoming more efficient—or
it could reflect economic sclerosis. Property values could be rising because regulations make it difficult to build, for
instance, and higher stock prices could be a sign that markets are becoming less competitive, and profits thus
easier to come by. Taxing and redistributing wealth, then, could be a justified response to misfiring markets.

Other economists are warming to the idea. In a new paper* published by the National Bureau of Economic
Research, a team of five economists aims squarely at the standard economic argument against wealth taxes.
Today’s wealth is yesterday’s income, that reasoning goes, so wealth taxes are bad because they discourage
income-generating activities, such as work and investment. Taxes on capital in particular should be spared,
because investment is an input into future growth. Taxes that discourage investment mean less output today and
a smaller economy tomorrow. In some economic models the optimal tax on capital is a whopping 0%.

But these models often assume that one investment is as good as the next. In practice, say the authors of the new
paper, that is far from true. Some people stash their money in low-yield government bonds; others fund startups
that become trillion-dollar companies. Shifting the burden of tax from capital income to wealth, they argue, would
reward investors capable of achieving outsize returns on their investments, and shrink the fortunes of those
unwilling or unable to put their lucre to productive use. Heirs would feel pressure to use their wealth or lose it.
Entrepreneurs accustomed to achieving double-digit returns would scarcely notice a modest wealth tax. Designed
well, the authors reckon, it could reduce inequality while raising productivity.

The authors’ use-it-or-lose-it approach to wealth taxation has some similarities with arguments for taxes on land
values (which this newspaper favours). Henry George, a 19th-century American journalist, became the Thomas
Piketty of his day by campaigning for such levies. The rents earned by wealthy landowners derive in part from
improvements they make to the land, he argued, but also from land’s scarcity. A land-value tax collects on behalf
of society the value attributable to the land itself, while leaving owners to collect the returns on investments in the
land, such as buildings, untaxed. Similarly, shifting the burden of tax from capital income to wealth rewards ongoing
efforts to deploy money well.

Department of Economics– Nov. 2019

  

Economists like land-value taxes because they are efficient. But they also have a certain moral appeal. Society
sets the terms on which individuals can accumulate wealth. It makes sense to structure those terms to benefit 8 
society as a whole. Wealth taxes are often cast as punitive—an impression encouraged by supporters, like Mr
Sanders, who believe that “billionaires should not exist”. But designed well, a wealth tax could confer greater moral
legitimacy on large fortunes, because keeping them means continually putting them to productive ends.

All’s well that ends wealth

Wealth taxes have their complications. Defining what kinds of investment are more productive than others is difficult.
Instead of encouraging more risk-taking they might encourage tax avoidance—and emigration, since the rich are
often highly mobile. In Europe, where citizens can easily move country and policing of tax evasion is lax, wealth
taxes have been hard to sustain. But some politicians reckon that the challenges are surmountable. Elizabeth
Warren, another Democratic presidential contender, would hit Americans who renounce their citizenship for tax
purposes with an “exit tax” of 40% of their net worth above $50m. Financial institutions maintain detailed information
on clients’ wealth balances; governments could require them to share this information with tax authorities.
Governments’ patience with tax havens, already waning, could fail entirely if wealth taxation spreads.

Overshoot is clearly a risk. An energised American left, if elevated to power, could easily go too far. But wealth
taxes are not necessarily an affront to economics. They are worth debating.

Department of Economics– Nov. 2019

  

Article 4 9 
Harvard Business Review
As Jobs Are Automated, Will Men and Women Be Affected Equally?
Emma Martinho-Truswell
November 01, 2019

I am writing this article while my baby daughter sleeps. Like all new parents, her dad and I have spent the last few
months in a joy-filled, sleepy haze of getting to know her and imagining what her future might look like. This brings a
new intensity, and a little more trepidation, to my role advising on the future of work. What will work look like for this
generation of young women, especially as more and more of our roles are being automated — or even replaced —
by artificial intelligence (AI)? And how can leaders ensure that AI does not lead to gender bias in their organizations?
Recent research is beginning to answer these questions, and the outlook is mixed: on the one hand, women may be
spared from the job disruptions men will face in the longer-term. On the other, the lack of gender diversity in AI-related
jobs could be reflected in the tools that are created, affecting whether women are hired or promoted.

First, the impact of AI on work will be influenced by the distribution of women and men in particular jobs. While an AI
tool may not be designed to replace the tasks of women or men in particular, many occupations are so skewed in their
current distribution that waves of automation may be felt more by women, or by men, at particular times. Bureau of
Labor Statistics data show that there’s an unbalanced gender distribution among the most common jobs in the U.S.
today. Jobs such as elementary and middle school teachers, registered nurses, and secretaries and administrative
assistants each comprise at least 80% women; while jobs such as truck drivers and construction laborers employ
more than 90% men.

Because AI tools will tend to automate tasks, rather than whole jobs, many occupations will be affected unequally.
While the gender distribution of occupations may shift over time, PwC has estimated that more women than men will
be affected by job changes between now and the late 2020s. This disproportionate impact on women is based largely
on the high number of women employed in clerical occupations: in the U.S., for example, 94% of secretaries and
administrative assistants are women. These kinds of roles are being disproportionally affected by technological
developments like automated assistants, and smarter email, calendar, and financial software.

This picture changes over the medium-term. As new AI capabilities develop, such as self-driving technologies, more
men than women will be affected by job changes between the late 2020s and the mid 2030s. During those years,
automation is predicted to lead to job losses in what are currently male-heavy industries, such as construction and
transportation. Employers should be thinking about this job redistribution in advance, to help ensure that a wave of
redundancies following technological change does not lead to a sudden worsening in organizational gender balance.
This could mean slowing down job losses to enable the organization to adjust. Aiming for gender parity in those areas
in which jobs are more secure, such as management roles, becomes all the more important.

Second, consider that women’s current representation in jobs related to AI is unequivocally poor. According to 2018
data from the World Economic Forum and LinkedIn, only 22% of jobs in artificial intelligence are held by women, with
even fewer holding the most senior roles. This is an important disparity, because those who learn about, experiment
with, and implement AI technologies will be creating the tools that organizations use on a day-to-day basis — and any
unconscious biases baked into their decisions they make could have serious consequences. For example, more and
more HR departments are using algorithms to help sift through resumes, conduct interviews, determine pay, and spot
performance problems. These tools are often intended to be more objective than human decision-making, but they
can easily go awry. For example, Amazon abandoned its AI recruitment tool after discovering that it showed
preference for male over female candidates.

Leaders of organizations using AI tools can help prevent the use of gender-biased tools by encouraging diverse
technical teams wherever possible. Having more women developing tools may help teams spot unintentional gender
biases, like training an algorithm on historic data that reflects gender inequality in who is hired or promoted. Leaders
should also regularly check the completeness of tests used to detect gender bias. That’s because a resulting tool can
still produce different outcomes for women and men even when an algorithm has been trained without using gender
as a data parameter. In the case of resumes, a gap between jobs or a longer period without promotions may be treated

Department of Economics– Nov. 2019

  

by an algorithm as negative indicators, but could be for reasons unrelated to work, such as a mother spending more
time at home around the birth of children. A tool that gives fair advice about hiring, performance, promotion or pay 10 
based on resumes should provide the same answers about men and women of equal competence, without assuming
that male and female resumes will always look the same.

What does this all mean for girls like my daughter, who will be entering the workforce in two decades or so? There are
substantial risks to navigate in the coming years, especially when women are judged using tools built on data from the
world as it is, rather than the world as it should be. Leaders should do their own checks to ensure that the AI tools that
their organizations are using are helping to reveal female talent, rather than accidentally overlooking it.

At the same time, the under-representation of women in science and technology roles is occurring alongside an over-
representation of women in the kinds of roles that require emotional intelligence and advanced communication skills,
such as speech pathologists, preschool teachers, or occupational therapists, to name a few. As skills such as empathy
and collaboration are among those that are hardest to recreate in AI tools, many of these occupations are likely to be
safer from technological disruption. Looking ahead, one happy possibility from the rise of AI is that people’s ability to
understand one another and work together may become more valued as technological tools overtake us in other
areas.

My optimism also has me wondering whether, as workers gravitate towards the safest roles, there may be greater
gender balance in jobs that have traditionally been dominated by men or by women. If so, this opens a greater variety
of choices — and the possibility of greater job satisfaction — for both our sons and our daughters.

Department of Economics– Nov. 2019